Interview with President Emeritus of EBAN Paulo Andrez on angel investing

Paulo is an angel investor with a background as serial entrepreneur and has created several companies in areas like IT software, training, real estate and industrial resins. Paulo Andrez was chairman of the World Business Angels Leaders Forum (Estoril, 2007) that decided to create the World Business Angel Association, and participated under FNABA scope in the design of the first Business Angel co-investment fund in Portugal. He was granted the President Emeritus of EBAN at the EBAN conference in Dublin in the end of May.

Paulo was interviewed by Marek Unt from JLP Communications Agency.

What led you to become a business angel?

As I always worked for companies that I created or co-founded, I was frequently approached by many entrepreneurs for advice. In some cases, I liked the entrepreneurs and the project, but I couldn’t invest as I was dedicated to my own companies. In 2006, when I sold the last shares of Novabase, I was finally available to become a Business Angel and start looking for deals and making investments.

How was that start?

I live in Portugal, and back in 2006, the Business Angel community was not structured, there was not much knowledge about Angel Investment, and the entrepreneurs didn’t know the concept. So there was the need to create the basis of the early stage investment ecosystem. I created a BA network in Cascais. And together with 4 other BA networks, we created FNABA (Portuguese Business Angel Federation), which today has 12 BANs as members. In 2008-2009, after great efforts from FNABA and other stakeholders, the Portuguese ecosystem was much better prepared to receive angel investments. It always takes some time, but after it gets its momentum, it is unstoppable.

What has been your most successful exit?

It was the Novabase exit, since we (shareholders) managed to float the company (IPO) in Euronext stock exchange, with a market cap that exceeded by far the mythic goal of 100M euros.

What do you think, how many companies can a business angel have in their portfolio to be able to successfully manage it?

Per each BA you ask this question, you will receive different answers. It depends how deeply involved the BA wants to be in their portfolio companies, if the BA wants to do co-investments with other BAs or not, how is his/her deal flow...

Of course, if someone is starting to do investments in startups, I would strongly recommend to make the first investments in syndication with more experienced Business Angels. Business Angel networks like EstBAN can play an important role in helping these new Angels to enter in the market.

Despite the fact that I believe in the benefits of diversification, I also do not believe in massive diversification. I tend to invest more money in fewer companies, than investing less money in many companies. The reason is that my day has only 24 hours, and I need to sleep and be with my family for some of those hours. And for angel investing to be fun, you must be involved with the start-ups.

If for instance I invested in 60 companies, 50 000 euros each, it would mean that I could hardly dedicate 45 minutes per week to each of the companies. So I would rather prefer to invest in 6 companies, 500 000 euros each. I also do some (more passive) investments in syndication with other angels, but it is a small proportion of my investment allocation.

Can you give one example of the strategy of fewer but more meaningful investments?

In 2009 I invested in a start-up called United Resins (an innovative resin company), 500 000 euros on equity and some more in a loan, together with two great entrepreneurs and another BA. This company built its premises in 2010. In 2011, the first full year of production, its sales reached 25M euros. I dedicated lots of time in helping the entrepreneurs during those 3 years.  If I had 20 or 30 more investments, I could have not dedicated so much time to this investment, and probably it wouldn’t be as successful as it is. However, some angels seem to be successful in investing in 30 or 40 companies. There is not just one correct strategy.

What are your expectations towards the European start-up ecosystem for the future?

I am quite optimistic about the future of the European Early Stage Ecosystem, since I see a strong convergence of several “forces”:

  • The European Commission is taking the Early Stage Ecosystem very seriously, and is implementing a set of initiatives to foster the ecosystem. Some of those initiatives were suggested by EBAN. The Startup Investors Manifesto is pointing out several of those measures.
  • All countries are trying to foster Entrepreneurship cultures in their countries, with a set of programmes and initiatives. There are thousands of Business Plan competitions, conferences and events related to entrepreneurship
  • The crisis has helped to awake some minds, so that the young generation now understands that a “A Job for Your Lifetime” doesn’t exist
  • There are now more than 200 Accelerators in Europe, and we also have a very good coverage of Business Incubators
  • There are Crowdfunding platforms that are helping the businesses to be tested before they receive funding from investors
  • All European countries now have a Business Angel network or a community of Angel investors, willing to invest in start-ups
  • European Investment Fund has launched the European Angel Fund and is expanding it rapidly
  • Media in general is giving more attention to start-ups  and the Early Stage Ecosystem

In terms of Angel investment, I think that in the next 5 we will see years the rise of countries like Turkey or Russia to be in TOP 5 countries of Angel Investment. The official EBAN statistics of 2013, recently launched, just prove this trend. Smaller countries, as Estonia, will also rise as Business Angel hubs.

You have been in Estonia and met several business angels and start-ups. What is your opinion about the ecosystem?

My first surprise was that Estonian Angels (EstBAN) are much better than they think they are. I have said this when I visited Tallinn in 2013 and as you noticed in the 2013 EBAN statistics, Estonia is the European country with the best average ratio (Visible Angel market /number of BANs). Of course, you have just one network, but the professionalism that you are having in managing it can be compared to the best practices in Europe. If you also see the ratio of Angel Investments compared with the GDP, Estonia is number one in Europe, so you are doing very well. But Estonia as all other countries is still far from its full potential.

I enjoyed to be talking to some Estonian entrepreneurs, and I realized that they are very open-minded. They think globally from the first minute, which is a great advantage in launching their businesses. But I also noticed some problems in valuing their businesses and ideas, with some unrealistic valuations.

How do you think the Estonian Early Stage Ecosystem could be improved?

If your government creates the Business Angel Co-Investment facility that EstBAN has been fighting for and EBAN has been supporting, it will be the tipping point for a new era in Estonia Early Stage Ecosystem, and for Estonia itself.